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Overnight Global News

• The European DJ Stoxx 50 this morning is trading -1.31% and Dec S&P's are trading -12.90 points (-1.52%). Bearish factors include the unexpected downward revisions in all of the European PMI service indexes which now show them contracting at a record pace, the weaker-than-expected Euro-Zone retail sales for Oct with the -0.8% m/m drop the biggest monthly decline in 22 months and the UK PMI service index falling to its lowest level since the index was created in 1996. On the brighter side, UBS predicts that global stocks will withstand a "full-blown" recession and surge in 2009 as cheap valuations and efforts by governments to restore confidence in the financial system lure investors back into stocks. UBS predicts the S&P 500 Index may rally to 1,300 (+53%) by the end of next year and the FTSE 100 Index may surge to 5,800 (+41%) by the end of 2009. Undercutting Asia-Pacific markets today were Australia reporting that its Q3 GDP came in weaker-than-expected at +0.1% q/q, the weakest in 8 years, and Honda Motor, Japan's second-largest automaker, falling to a 7-year low in Tokyo after reporting the weakest US car sales since 1981. Overall, Asia-Pacific stocks today closed mixed: Japan +1.79%, Hong Kong +1.36%, China +4.50%, Taiwan -1.14%, Australia +0.16%, Singapore +0.08%, South Korea -0.06%, Bombay +0.09%.
• Mortgage apps The markets are looking for a big increase in refinancing activity in the next several weeks. The real question, however, is whether the drop in mortgage rates will spark any significant boost in home buying activity. Mortgage rates fell sharply last week after the Treasury and Fed announced an $800 billion program to support the mortgage market with the purchase of $600 billion in mortgage securities and $200 billion worth of Freddie/Fannie debt. The 30-year mortgage rate in the week ended November 27 fell to 5.97%, according to Freddie Mac data, which is one-half percentage point lower than the previous month. More recent data indicates that the 30-year fixed mortgage rate is currently at 5.76%, down another 21 bp from last Thursday's Freddie Mac figure.
• Productivity Today's Q3 nonfarm productivity is expected to be revised lower to +0.9% from the last report of +1.1%. US productivity is likely to drop sharply over the next several quarters as GDP output falls. US businesses have been cutting workforces, but the decline in hours worked is likely to lag sales, thus pushing productivity lower.
• ISM non-manufacturing index Today's Nov ISM non-manufacturing index is expected to fall 2.4 points to 42.0, adding to the 5.8 point decline to 44.4 seen in October. The October level of 44.4 was the lowest since the 7-year low of 41.9 was posted in Jan 2008. The record low for the series, which has history back to 1997, is 40.5 posted in Oct 2001. The current market consensus is for a 2.1% decline in Q4-2008 GDP, followed by an improvement to 0.9% in Q1 and +0.5% in Q2.

Overnight U.S. Stock News

• December S&Ps this morning are trading -12.90 points (-1.52%) on softer European equities and weaker-than expected earnings from Research in Motion. The US stock market yesterday opened stronger and traded in positive territory throughout the day and finished higher (Dow +3.31%, S&P 500 +3.99%, Nasdaq Composite +3.70%).
• Bullish factors for stock prices yesterday included (1) the rally in financial stocks after the Fed said it will extend its three emergency-loan programs to April 30 from January 30, (2) the +13.6% rally in General Electric after the company said it plans to pay its $1.24 per share dividend in 2009 as steps it took to bolster its fianance unit will help protect the dividend, (3) the 5.9% rally in Ford and 5.7% rise in General Motors after both automakers presented their plans to Congress as part of their pursuit of federal aid after which the Speaker of the House, Nancy Pelosi, stated bankruptcy is "not an option" for the industry, stoking speculation a Congressional bailout is forthcoming, and (4) the recommendation from Credit Suisse Group AG to buy US stocks as US stocks are supported by a "proactive" Fed.
• Bearish factors for stock prices yesterday included (1) the prediction from Oppenheimer analyst Whitney that US housing prices will continue to fall because lenders are restricting credit as unemployment rises, (2) the 37% drop in US auto sales for November to the lowest annual rate in 26 years as US auto sales have now fallen for 13 straight months, the longest streak in 17 years, and (3) comments from FDIC Chairman Bair that there's no "light at end of the tunnel" until the housing market is stabilized as continuing foreclosures are helping housing "overshoot" its bottom.
• Research in Motion (RIM) is trading 11% lower in Germany this morning after the maker of the BlackBerry said Q3 profit rose to no more than 83 cents a share, missing an earlier forecast of 97 cents.
• General Motors (GM) is trading 6% lower in Germany this morning after the automaker told Congress it must have $4 billion this month and $4 billion more by the end of January to stay in business

Today's U.S. Market Focus

• March 10-year T-notes this morning are down -15 ticks on long liquidation following the recent surge in prices. March T-note prices yesterday traded lower early before rallying the rest of the day when they closed +8 ticks at a contract high settlement. Bullish factors for T-note prices yesterday included (1) carryover support from Monday's rally after Fed Chairman Bernanke said the Fed may purchase Treasuries to reduce long-term interest rates, and (2) the prediction from Oppenheimer that US housing prices will continue to decline because lenders are restricting credit as unemployment rises. Bearish factors for T-note prices yesterday included (1) the action by the Fed in extending the term of its three emergency loan programs to April 30 from Jan 30 "in light of continuing strains in financial markets," decreasing the demand for the safety of Treasuries, and (2) profit-taking after the parabolic rally that shot T-notes prices up over 6+ points in the past week.
• The dollar is stronger this morning with the dollar/yen unchanged and the euro/dollar -0.73 cents. The dollar index yesterday closed little changed. Bearish factors for the dollar yesterday included (1) the action by the Fed in extending its three emergency loan programs until April 30 from Jan 30, decreasing the demand for dollars, and (2) the action by the Australian central bank in cutting its benchmark rate an unexpected 100 bp to a 6-year low, posssibly stimulating economic growth in the Asia-Pacific region. Bullish factors for the dollar yesterday included (1) weakness in the yen as the stock market rallied, encouraging the yen carry trade, and (2) strengthening dollar interest rate differentials with the BOE and the ECB both expected to slash their respective interest rates when they convene tomorrow.

• January crude oil prices this morning are trading higher by +32 cents a barrel and January gasoline is trading down -1.26 cents a gallon. Crude oil prices are supported this morning by comments from Qatar's oil minister that OPEC will "definitely" cut output at its next meeting on Dec 17. January crude oil prices yesterday whipsawed on either side of unchanged until late in the day when they sold-off and closed down -$2.32 a barrel and January gasoline closed -5.29 cents a gallon. January crude oil fell to a 3-1/2 year nearest-futures low yesterday. Bearish factors for crude oil prices yesterday included (1) rising concerns that the global economic slowdown is deepening, potentially crimping energy demand further, and (2) expectations of a build in crude oil inventories for the 10th week in a row when the DOE releases its weekly inventory data today. Bullish factors for crude oil prices yesterday included (1) the weaker dollar, and (2) a near certainty that OPEC will cut crude production further in an attempt to shore up prices when they meet on Dec 17. Expectations for today's weekly DOE inventory report are for a +1.4 million bbl climb in crude oil inventories, a +900,000 bbl increase in gasoline stockpiles, a +350,000 bbl rise in distillate inventories and a +0.4 increase in the refinery capacity rate to 86.6%

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): SNPS-Synopsys (BEST earnings consensus $0.38 per share), CPRT-Copart (0.43), CASY-Casey's General Stores (0.57), DLM-Del Monte Foods (0.12)

Global Financial Calendar